DEBT, FOLKLORE, AND CROSS-COUNTRY DIFFERENCES IN FINANCIAL STRUCTURE

Conventional wisdom has long held that, in relationship-based economies such as Japan and Germany, corporations are able to borrow more than U.S. companies, which in turn reduces their cost of capital and gives them a competitive edge. But such folklore does not stand up to scrutiny. In Japan and Germany, large businesses do not borrow more than U.S. companies-and, in fact, judging from coverage ratios, German companies (as well as U.K. companies) seem to borrow considerably less than their international competitors. 1998 Morgan Stanley.